Law360, New York (May 2, 2017, 5:01 PM EDT) United States law has long prohibited the patenting of an invention that was “on sale” in the United States before the inventor filed a patent application, unless that activity fell within a statutory grace period. See, e.g., 35 U.S.C. §102(b)(one-year grace period). In Pfaff v. Wells Electronics Inc., 525 U.S. 25 (1998), the court held Section 102(b)’s on-sale bar is triggered if product is the subject of a commercial offer for sale and the invention is ready for patenting. The ready-for-patenting prong may be shown “by proof of reduction to practice before the critical date; or by proof that prior to the critical date, the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.” 

The Federal Circuit promptly fleshed out the nuances of the new standard. Few larger U.S. businesses, however, relied prospectively on the one-year grace period to test products in the marketplace. Faced with an absolute novelty requirement in many non-U.S. countries, they used the one-year grace period as a safety net, if at all.

America Invents Act § 102(a)(1)(2011) bars a person from obtaining a patent if “the claimed invention was … on sale, or otherwise available to the public before the effective filing date of the claimed invention.” This bar is somewhat tempered by AIA § 102(b)(1), which offers a one-year grace period if “the disclosure was by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.” Id.

The Medicines Co. v. Hospira Inc., 827 F.3d 1363 (Fed. Cir. 2016)(en banc), while applying the on-sale bar to product-by-process claims had broad language suggesting wider possible relief. On May 1, 2017, the Federal Circuit issued Helsinn Healthcare SA v. Teva Pharmaceuticals USA Inc., Nos. 2016-1284, -1787, providing guidance on Medicines and the AIA on-sale bar. This article examines those cases and considers how they have changed the playing field.

Initial Federal Circuit Application of Pfaff

A brief review of several early Federal Circuit on-sale bar decisions is helpful to understand Medicines and Helsinn. Weatherchem Corp. v. J. L. Clark Inc., 163 F.3d 1326 (Fed. Cir. 1998) held a patent on a bottle cap invalid. Prior to the critical date, based on drawings the inventors prepared that contained the elements later disclosed in the specification, Durkee bought sample caps. Although Durkee’s testing identified a problem, Weatherchem quoted a price on 500,000 caps and provides a solution for the problem. Durkee then issued a purchase order for 275,000 caps. The district court held that the invention was on sale by the date on which Durkee ordered 275,000 caps. The Federal Circuit agreed, regarded it as “immaterial” that the record showed no delivery of the later-patented caps and no exchange of money until after the critical date.

Weatherchem also affirmed that the invention was ready for patenting not later than when Durkee ordered the 275,000 caps. One co-inventor testified he could fix the problem before the critical date; Durkee’s order of a commercial quantity showed its confidence that the invention was operative; and, the manufacturer produced the invention using the inventors’ drawings.

Scaltech Inc. v Retec/Tetra LLC, 178 F.3d 1378 (Fed. Cir.1999) involved a process for disposing of refinery waste which the inventors could only perform on third-party units. Scaltech made six proposals more than a year before the grace period, but only four of them identified the process as experimental. Eventually, Scaltech was able to conduct tests which yielded a significant improvement over the prior art. Upon identifying the key to the improvement, Scaltech filed an application.

On appeal from summary judgment of invalidity, the Federal Circuit reversed. The record did not establish that the patented invention had been placed on sale prematurely. Yet, on remand, all the district court needed to find for invalidity was that the process offered in a proposal contained the claimed limitations, even if the improvement was not mentioned. Moreover, Scaltech need not have been aware that the process offered even contained the improvement, if it did.

Brasseler, U.S.A. I LP v. Stryker Sales Corp., 182 F.3d 888 (Fed. Cir. 1999) affirmed a holding of invalidity although Brasseler and DS Manufacturing each contributed co-inventors and DS was obligated to make products solely for Brasseler. The Federal Circuit rejected Brasseler’s equitable ownership argument, refused to recognize a “joint development” exception to the on-sale bar, and refused to excuse first sales to Brasseler from its manufacturer.

The Medicines Co. v. Hospira Inc.

Patentee MedCo lacked manufacturing facilities, so it contracted with BV to manufacture commercial bivalirudin drug products. MedCo’s investigations of problems BV initially experienced led to development of a new compounding process claimed in the two patents.

Prior to the critical date, MedCo paid BV $347,000 to manufacture three commercial batches of bivalirudin using the new process. The batches were placed into quarantine with MedCo’s distributor, ICS, pending U.S. Food and Drug Administration approval. The MedCo-ICS agreement passed title and risk of loss to ICS from MedCo following release from quarantine. Under the agreement, moreover, ICS would place individual purchase orders with MedCo on a weekly basis which MedCo could accept or reject. Only after the critical date did MedCo release any batches from quarantine and make them available for sale.

The district court held the on-sale bar had not been triggered because the BV transactions were sales of contract manufacturing services in which title always resided with MedCo. Moreover, the ICS agreement was merely a contract to enter into a contract for future sales. The Federal Circuit granted en banc review to decide whether there was a commercial offer for sale despite the absence of a transfer of title and whether to modify the principle that there is no “supplier exception” to the on-sale bar.

The Federal Circuit held the sale of manufacturing services to an inventor does not constitute a “commercial sale” of the invention. Moreover, stockpiling by the purchaser of manufacturing services is not improper commercialization. “[C]ommercial benefit — even to both parties in a transaction — is not enough to trigger the on-sale bar under § 102(b); the transaction must be one in which the product is ‘on sale’ in the sense that it is ‘commercially marketed.’” The Federal Circuit distinguished cases which involved processes or methods. It also pointed to the confidential nature of the transactions, while recognizing prior decisions had found confidential transactions to be patent-invalidating sales. The appellate court distinguished, but overruled, three supplier cases “with one important caveat. We still do not recognize a blanket ‘supplier exception’ to what would otherwise constitute a commercial sale as we have characterized it today.… The focus must be on the commercial character of the transaction, not solely on the identity of the participants.”

Helsinn and “or Otherwise Available to the Public”

Helsinn involved three pre-AIA patents, and one AIA patent. The district court concluded there was an invalidating offer for sale for the three patents, but the invention was not ready for patenting before the critical date. With respect to AIA patent, the district court determined that “otherwise available to the public” so AIA §102(a)(1) “requires a public sale or offer for sale of the claimed invention.” It declined to find the transactions met that standard.

The Federal Circuit reversed, holding all four patents invalid. For context, prior to the critical date, Helsinn and MGI entered into a license agreement and a supply and purchase agreement. The two agreements were announced in a joint press release and in MGI’s Form 8-K filing, which included partially redacted copies. MGI was required to purchase exclusively from Helsinn and Helsinn agreed to supply MGI’s requirements of doses approved by the FDA. Contingently, Helsinn was obligated to designate a third party manufacturer to supply MGI with the product. The agreement specified price, method of payment and method of delivery, and everything but price terms and specific dosage was publicly disclosed. After the critical date, Helsinn submitted preliminary Phase III data to the FDA. Helsinn later filed the applications for the three pre-AIA patents, in 2005 and 2006 and for the AIA patent in 2013.

Beginning with the three pre-AIA patents, the Federal Circuit distinguished factors identified in Medicines other than the Uniform Commercial Code, such as absence of passage of title, the confidential nature of a transaction and the absence of commercial marketing of the invention. While these factors helped shed light on whether a transaction would be understood “in the commercial community” to constitute a commercial offer for sale, they were not in issue because the Helsinn-MGI transaction did not remain confidential.

The Federal Circuit rejected Helsinn’s argument that the supply agreement was not invalidating because it was uncertain whether the FDA would approve a 0.25 mg dose, and FDA approval was a condition precedent to the sale. The court opined that “[a] contract for sale that includes a condition precedent is a valid and enforceable contract.” Additionally, the appellate court disagreed with Helsinn’s argument that commercial activities should not be invalidating if those same activities could be performed in-house without triggering the on-sale bar, because “[s]uch a broad principle would largely eviscerate the on-sale bar provision except as to sales to end users; that was not the holding of Medicines.”

Turning to the post-AIA patent, the Federal Circuit deemed congressional floor statements to show at most intent to overrule precedent involving a public use where the invention was not, as a result of the use, disclosed to the public. “This public use issue is not before us, and we decline to address it.” The appellate court rejected Helsinn’s argument that the “otherwise available to the public” phrase meant Congress required that the details of the claimed invention be publicly disclosed to trigger the on-sale bar. According to the court, if Congress had intended to work such a sweeping change to on-sale jurisprudence, it would have done so by clear language. Accordingly, after the AIA, “if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.” Yet, the court emphasized it did not hold that distribution agreements will always be invalidating under the on-sale bar, “[w]e simply find that this particular Supply and Purchase Agreement is.”

Finally, turning to whether the invention would work for its intended purpose, the Federal Circuit concluded that the invention was ready for patenting because it was reduced to practice before the critical date. The district court had erred by applying a more rigorous standard that governs FDA approval of new drugs, including the various stages of clinical trials.

Conclusions

Outcomes mandated by Pfaff, such as those exemplified in Weatherchem and Scaltech, will continue unchanged under AIA §102(a), Medicines and Helsinn. On the other hand, Medicines offers new flexibility under pre-AIA law for inventors who contracted, or need to contract for, manufacturing services. Moreover, the change wrought in Medicines from a “no supplier exception” to how “the commercial community” would understand the character of the transaction, may in some circumstances save a patent otherwise subject to the harsh application of the pre-AIA statute. Non-UCC factors identified in Medicines but not at issue in Helsinn, e.g., the confidential nature of a transaction, absence of passage of title and lack of commercial marketing, may prove useful both in client counseling or to salvage a patent threatened by the on-sale bar. Brasseler might have come to a different result in 2017.

Helsinn provides guidance on the meaning of AIA §102(a). Helsinn held that if the existence of a sale is public, its details need not be publicly disclosed to trigger AIA §102(a). Conversely, keeping the fact of a sale confidential should arguably avoid triggering the new on-sale bar. The details of a distribution agreement and the surrounding facts take on increased significance. The relevant facts in Helsinn triggered the on-sale bar, while those in Medicines did not. Moreover, the non-UCC factors may become more relevant under Helsinn’s view of AIA §102(a). Business confidentiality is important. Of course, public use, where the invention is not disclosed to the public, does not trigger the new bar. Finally, the U.S. Patent and Trademark Office will need to reassess its view of the scope of “or otherwise available to the public” in view of Helsinn.